China gives yuan more freedom

April 16 - Beijing doubles the trading band of the yuan to one percent, as it pushes to reform and liberalize its financial system; signals comfort with economy. Arnold Gay reports.

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The doubling of the yuan's trading band underlines Beijing's belief that China's slowing economy is sturdy enough to handle important, structural reforms.
But it also comes ahead of several key global meetings, including at the IMF and G20.
Haitong International Chief Economist Hu Yifan says the move is critical in the reform of China's financial system, with upcoming U.S. elections adding a political dimension.
(SOUNDBITE) (English) HAITONG INTERNATIONAL CHIEF CHINA ECONOMIST HU YIFAN SAYING:
"It's a necessary step to deepening foreign exchange reforms, but at the same time, it could also serve as support for Sino-U.S. relations."
U.S. manufacturers complain that China's yuan is grossly undervalued, giving Beijing an unfair trading advantage that has cost millions of American jobs.
With the new policy, the yuan is allowed to gain or lose as much as one percent from the mid-point set by the central bank daily.
Mirae Asset's Joy Yang thinks more needs to be done before Beijing can achieve its goal of making the yuan an international currency.
(SOUNDBITE) (English) MIRAE ASSET CHINA CHIEF ECONOMIST, JOY YANG, SAYING:
"It is not enough because if you look at most of the other emerging markets who have floating management of their exchange rate, then their trading band is much wider than one percent and most of them are having three percent to five percent. So I think one percent is just getting started; and looking forward, we expect more steps to further widen the trade band."
Yang says Beijing will likely widen the band by 0.5 percentage points each time over the next few years, but will have to eventually link the yuan to more currencies.
(SOUNDBITE) (English) MIRAE ASSET CHINA CHIEF ECONOMIST, JOY YANG, SAYING:
"In the coming years they'll have to make the Renminbi appreciation more targeting not just the US dollar, but also to a basket of other currencies - including the euro, yen and British pound."
The yuan opened weaker Monday, reinforcing the view that the days of non-stop, one-way appreciation in the yuan against the dollar are probably gone.
Commodity currencies like the Australian dollar also eased, as the widened band failed to quell worries about China's demand for commodities.
Arnold Gay, Reuters.

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